Ministry of Environment Considers Extending Hybrid Eco-Friendly Vehicle Status... Tax Reduction Benefits to Increase

Background for Extending Hybrid Cars as Eco-Friendly Cars
"Tax Benefits Must Continue" Possibility of Acceptance of National Assembly and Industry Demands

[Sejong=Asia Economy Reporter Moon Chaeseok] The possibility of a three-year extension for the individual consumption tax exemption on hybrid vehicles has increased because a one-year extension, as proposed by the government, would make it difficult to expect the policy effect of expanding eco-friendly vehicle adoption.

The amendment to the Special Tax Treatment Control Act, which began discussions on the 15th at the National Assembly's Planning and Finance Committee's Tax Subcommittee, includes the government's proposal to extend the individual consumption tax exemption, which expires this year, until next year; the proposals by Kwon Seong-dong and Chu Kyung-ho of the People Power Party to extend it until 2024; and the proposal by Ko Yong-jin of the Democratic Party to extend it until 2025. The ruling and opposition parties plan to handle this as a supplementary budget bill along with next year's budget.

Under the current Special Tax Treatment Control Act, if the individual consumption tax amount for a hybrid vehicle is 1 million won or less, the entire amount is exempted; if it exceeds 1 million won, 1 million won is exempted. The related industry argues that if the deadline ends at the end of next year as per the government's proposal, the tax benefit will effectively have only a "four-month effect." Due to a shortage of automotive semiconductors, vehicle delivery times have lengthened, taking at least nine months from order to delivery. If the tax benefit ends at the end of next year as proposed by the government, only customers who order vehicles by around March next year, about three months later, will receive the exemption benefit. This situation would lead consumers to prefer purchasing internal combustion engine vehicles over hybrid vehicles, contradicting the policy intent to increase the adoption of eco-friendly vehicles. A Ministry of Economy and Finance official explained, "Even if the contract is made next year, tax benefits cannot be received before delivery."

Tax benefits for hybrid vehicles are quite popular. According to the Ministry of Economy and Finance, the scale of individual consumption tax exemptions for hybrid vehicles is expected to reach 238.2 billion won this year, up from 69.1 billion won in 2017. The National Assembly Budget Office predicted that if the amendment to the Special Tax Treatment Control Act passes, the tax revenue exemption in 2024 could reach 389.1 billion won.

There is also growing interest in the possibility of changes to the Ministry of Environment's policy to exclude hybrid vehicles from eco-friendly vehicles. The Ministry of Environment announced plans to exclude hybrid vehicles from eco-friendly vehicles under the Atmospheric Environment Conservation Act starting January 2023. However, if the tax benefits are extended for three years, the timing of the related law's enforcement to exclude hybrid vehicles from eco-friendly vehicles will inevitably be delayed. Article 109 of the Special Tax Treatment Control Act stipulates that the individual consumption tax exemption can only be granted to eco-friendly vehicles as defined by the Act on the Development and Promotion of Environmentally Friendly Automobiles. In other words, if the tax exemption period is extended through the amendment of the Special Tax Treatment Control Act by the political sector, there is a greater possibility that the inclusion or exclusion period of hybrid vehicles as eco-friendly vehicles under the Atmospheric Environment Conservation Act will need to be adjusted.

An opposition party official said, "Even within the government, only the Ministry of Environment opposes the extension of the sunset clause due to the exclusion of hybrid vehicles from eco-friendly vehicles under the Atmospheric Environment Conservation Act, while the Ministry of Trade, Industry and Energy and others are known to support it." A government official also said, "If the sunset extension is processed through a member's bill, the government has no authority to block it."

The industry recently proposed a three-year extension of the individual consumption tax exemption for hybrid vehicles to Prime Minister Kim Boo-kyum. In a phone interview with Asia Economy, Chung Manki, president of the Korea Automobile Manufacturers Association, said, "We proposed a three-year extension of the individual consumption tax exemption for hybrid vehicles to Prime Minister Kim Boo-kyum," adding, "The Ministry of Environment's decision on whether to exclude hybrid vehicles from eco-friendly vehicles could vary depending on discussions."

This content was produced with the assistance of AI translation services.